Teamlease wants to add 18-20% more employees this year but is cautious about margins

Teamlease’s consolidated earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin for the April-to-June 2022 quarter are down 90 basis points on a sequential basis and down 80 bps on a year-on-year basis at 1.35 percent (FY22 was 2.2 percent).

Dathi lays out three reasons that led to a decline in Teamlease’s margins in the June 2022 quarter

Inflation in associates. While the company usually goes for a 5 to 6 percent salary inflation in the associates part of general staffing business, last year, it went up to 11 to 12 percent.

“With the gross salaries going up, that has put on a pressure in terms of our percentage margins. While the absolute margins are improving in staffing business, as a percentage, this increase in topline is putting pressure,” she said.

2. The second one is specific to this quarter. Higher hikes were given to core employees as well. Historically, the staffing firm has been giving about 7-8 percent hikes to core employees and this year, matching the market demand and the corrections that were required, it ended up hiking salaries by 12 percent. “That has led to almost a Rs 5-6 crore increase in our costs in this quarter,” she said.

3. There are a few one-time impacts like the firm’s edtech business, which was impacted because, in the first quarter, with holiday season for almost all universities, no admissions were taking place. “So, there is a Rs 5 crore impact straightaway coming from our edtech business,” she said.

Dathi said her firm is very positive about the outlook for the upcoming festive season. With the cost being fully absorbed, it is confident of taking the year-end margins back to last year levels.

“From quarter two onwards, we are looking for a consistent quarter-on-quarter expansion in our margins. We don't give exact guidance, but we are hopeful of closing the year with the margins what we closed with last year. And this is mainly on account of operating leverage coming from our staffing business because the costs are fully absorbed, the growth will straightaway contribute to the bottom line and the contribution from our higher margin businesses like IT staffing, ed-tech business is also increasing,” she explained.

Commenting on sectors, she said at the start of the year very high demand was expected from manufacturing, infrastructure and engineering industries, on the back of Production-Linked Incentive (PLI) schemes and other initiatives by the government but that did not play out as there is a bit of sluggishness in hiring in these sectors.

Teamlease is witnessing a better outlook from other industries like banking, financial services and insurance (BFSI), retail, and telecom. Retail for a long time continued at very low numbers because of COVID but now that physical retail stores and e-commerce sites are back in action, there is a very strong outlook and demand there.